Garuda Indonesia is talking to Airbus and Boeing about canceling aircraft orders. The pending cancelations are part of an ongoing effort to restructure and slash debt at the beleaguered Indonesian flag carrier. Set to fall by the wayside is an order for 49 Boeing 737 MAXs and 12 Airbus A330s.

The cancelation was flagged during a meeting with creditors in Jakarta on Tuesday, March 1. Garuda's Director of Finance and Risk Management and Chief Executive Officer both confirmed the imminent cancelations following the meeting.

Future fleet downsizing on the agenda at Garuda Indonesia creditor's meeting

The Jakarta-based airline owes its assorted creditors US$9.8 billion. Under the court-supervised restructuring process (known as PKPU proceedings in Indonesia), the airline wants to cut that cut to a more manageable $3.4 billion. Some radical fleet surgery is emerging as the favored way to achieve this.

Before the outbreak of COVID-19, a consistently unprofitable Garuda Indonesia had 142 planes in its fleet. Coming out of the restructuring process, the airline is eyeing a fleet of just 66 aircraft, a reduction of about 55%.

Airline database ch-aviation.com reports that Garuda's current fleet stands at 117 planes, with 99 of those planes on a lease. The same database says 30 lessors currently have aircraft placed with Garuda. Garuda wants lessors to offer lower rates and power-by-hour deals for the aircraft the airline wants to keep. Existing debts with all lessors Garuda wants to service via issuance of Islamic bonds. Convincing the assorted lessors to accept this deal is vital to the restructuring process.

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Under current restructuring plans, the Garuda Indonesia fleet will shrink by more than half. Photo: Airbus

Aircraft order cancelation avoids further future debt

Convincing Boeing and Airbus to cancel existing orders is another aspect of the fleet surgery and helps Garuda avoid another $5.9 billion in future liabilities. Garuda has outstanding orders for nine A330-900 jets and four A330-800s they want to cancel. That order is worth a reported $1 billion at list prices. Garuda's fleet plans change constantly. They already have six A330-200s, 17 A330-300s, and three A330-900neos. Last September, the airline said all the A330-200s and 10 of the A330-300s would go, but the existing A330-900neos would stay.

Garuda's stated ambition of downsizing to a smaller regional airline rather than operating as a long-haul carrier means there is less need for their existing and future widebody planes. In that light, all the leased Garuda Boeing 777-300ERs are also set to depart.

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Garuda Indonesia wants to keep its order for A320neos destined for low-cost subsidiary Citilink. Photo: Airbus

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737 MAXs out of favor while A320 order stays intact

While 737 MAXs might be a better fit for a domestic and intra-Asia regional operator than widebodied planes, the $4.9 billion bill for the 50 MAX 8s on order and the 2018 Lion Air MAX crash just offshore from Jakarta has dampened enthusiasm for the plane at Garuda. The airline has taken delivery of one of the MAXs but wants to cancel the remaining 49.

"Hopefully, we can get a win-win solution," Garuda Indonesia CEO Irfan Setiaputra said this week about cancelation talks.

Garuda also has an order with Airbus for 25 A320neo aircraft destined to fly for its low-cost subsidiary Citilink. Current reports indicate Garuda wants to keep that order in place. Irfan Setiaputra has previously stated he sees a restructured Garuda adopting a Citilink style operating model. There is no word on whether Garuda is trying to renegotiate terms on this order.